Order 2016-5-17 Served: May 20, 2016

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation on the 20th day of May, 2016

Essential Air Service at

ALAMOSA, COLORADO ALTOONA, PENNSYLVANIA BRADFORD, PENNSYLVANIA CLARKSBURG/FAIRMONT, WEST VIRGINIA DUBOIS, PENNSYLVANIA EL CENTRO, CALIFORNIA FORT DODGE, IOWA FRANKLIN/OIL CITY, PENNSYLVANIA HAGERSTOWN, MARYLAND JACKSON, TENNESSEE JAMESTOWN, NEW YORK JOHNSTOWN, PENNSYLVANIA KEARNEY, NEBRASKA LANCASTER, PENNSYLVANIA MACON, GEORGIA MASON CITY, IOWA MERCED, CALIFORNIA MUSCLE SHOALS, ALABAMA OWENSBORO, KENTUCKY PARKERSBURG, WEST VIRGINIA/MARIETTA, OHIO PENDLETON, OREGON PRESCOTT, ARIZONA PUEBLO, COLORADO SALINA, KANSAS SCOTTSBLUFF, NEBRASKA SHOW LOW, ARIZONA TUPELO, MISSISSIPPI VICTORIA, TEXAS VISALIA, CALIFORNIA WATERTOWN, SOUTH DAKOTA

Tentatively terminating eligibility Under 49 U.S.C. 41731 et seq. and proposing a waiver from certain requirements for a class of communities

DOT-OST-1997-2960 DOT-OST-2002-11446 DOT-OST-2003-14528 DOT-OST-2005-20736 DOT-OST-2004-17617 DOT-OST-2008-0299 DOT-OST-2001-10682 DOT-OST-1997-2523 DOT-OST-2006-25228 DOT-OST-2000-7857 DOT-OST-2003-14950 DOT-OST-2002-11451 DOT-OST-1996-1715 DOT-OST-2002-11450 DOT-OST-2007-28671 DOT-OST-2001-10684 DOT-OST-1998-3521 DOT-OST-2000-7856 DOT-OST-2000-7855 DOT-OST-2005-20734 DOT-OST-2004-19934 DOT-OST-1996-1899 DOT-OST-1999-6589 DOT-OST-2002-11376 DOT-OST-2003-14535 DOT-OST-1998-4409 DOT-OST-2009-0305 DOT-OST-2005-20454 DOT-OST-2004-19916 DOT-OST-2011-10644

- 2 -

ORDER TENTATIVELY TERMINATING ESSENTIAL AIR SERVICE ELIGIBILITY

AND TENTATIVELY GRANTING A WAIVER FOR COMMUNITIES THAT EXPERIENCED A SERVICE HIATUS

Summary By this Order, the U.S. Department of Transportation (the Department) is directing interested persons to show cause why the Department should not terminate the eligibility under the Essential Air Service (EAS) program of the communities listed on the caption of this Order. The Department has tentatively determined that these communities did not enplane an average of 10 or more passengers per day during Fiscal Year 2015, as required by 49 U.S.C. § 41731(a)(1)(B), and/or required a rate of subsidy per passenger in excess of $200 (the “Subsidy Cap”).1 Objections to the Department’s tentative decision are due within 20 days of the service date of this Order. Additionally, communities that required a subsidy per passenger in excess of the Subsidy Cap during Fiscal Year 2015 may work with an air carrier to submit a proposal to the Department that complies with the Subsidy Cap, as further described in this Order. Also by this Order, the Department tentatively grants a waiver to the eight communities that suffered a service hiatus for the reasons described herein. Communities may object to the Department’s tentative findings. If the Department terminates a community’s eligibility for EAS, the community will be provided an opportunity to petition the Department for a waiver. The process for submitting a petition for waiver will be addressed in a separate Order. Background The FAA Modernization and Reform Act, Pub. L. No. 112-95 (Feb. 14, 2012) (FAA 2012), amended 49 U.S.C. § 41731(a) to change the definition of “eligible place” for the purpose of receiving EAS by adding a new subsection (1)(B). Subsection (1)(B) states that, to be an eligible place for EAS, a community must have averaged 10 or more enplanements per service day, as determined by the Secretary, during the most recent fiscal year beginning after September 30, 2012. This requirement does not apply to locations in Alaska and Hawaii and communities that are more than 175 driving miles from the nearest large-or medium-hub airport.2 The Secretary may waive the 10-enplanement requirement, on an annual basis, if the community demonstrates to the Secretary’s satisfaction that the reason the location averages fewer than 10 enplanements per day is due to a temporary decline in enplanements.3 The Department of Transportation and Related Agencies Appropriations Act, 2000, Pub. L. No. 106-69 (Oct. 9, 1999), prohibits the Department from subsidizing EAS for communities located

1 As shown on the appendices to this Order, the Department has tentatively determined that 30 communities had per-passenger subsidies in excess of the Subsidy Cap based on Fiscal Year 2015 data, eight of which experienced an extended service hiatus during Fiscal Year 2015. Of the 30 communities, the Department has tentatively determined that 12 communities also enplaned an average of fewer than 10 passengers per service day. Of these 12 communities, four experienced an extended service hiatus during Fiscal Year 2015. 2 See 49 U.S.C. § 41731(c) and (d). 3 See 49 U.S.C. § 41731(e).

- 3 -

within the 48 contiguous States when per passenger subsidy amounts exceed $200, unless the communities are located more than 210 miles to the nearest large- or medium-hub airport (the “Subsidy Cap”). On October 9, 2014, the Department issued a Notice of Enforcement Policy announcing how the Department intended to enforce compliance with the Subsidy Cap.4 As stated in the Notice of Enforcement Policy, all communities receiving subsidized EAS had until September 30, 2015, based on data from October 1, 2014, through September 30, 2015, to ensure compliance with the Subsidy Cap or face possible termination of EAS eligibility. FAA 2012 authorized the Secretary of Transportation to waive the Subsidy Cap, subject to the availability of funds, on a case-by-case basis, for a limited period of time. Methodology and Enplanement History To determine whether an EAS community is subject to the 10-enplanement or Subsidy Cap requirements, the Department must determine the communities’ distance, by driving miles, from the nearest large- or medium-hub airport. The Department measures the shortest driving distance from the center of the EAS community to the nearest large- or medium-hub airport.5 In calculating enplanements per day, the Department has taken total annual origin and destination passenger numbers for Fiscal Year 2015, divided by two, to show passengers in one direction (enplanements at the EAS community), and then divided by 313 days to get average daily enplanements at the EAS community. The Department does not use 365 days per year in its calculations because the typical EAS contract provides for the equivalent of six-day-a-week service.6 The subsidy per passenger was calculated by taking the annual subsidy rate and dividing by the total number of enplanements plus deplanements at the EAS community on the subsidized EAS air carrier for Fiscal Year 2015, i.e., from October 1, 2014, through September 30, 2015. In addition, the Department calculated the average subsidy per passenger using actual subsidies paid at each of the communities and appears in Appendix C.7 Decision After careful consideration of this matter, the Department has tentatively decided to terminate the eligibility of the 30 communities captioned above, while tentatively granting a waiver for the 4 On May 1, 2014, the Department published a Notice of Proposed Enforcement Policy for the Subsidy Cap in the Federal Register, 79 Fed. Reg. 24632, for comment. After a 60-day public comment period and review, the Department issued the Final Notice of Enforcement Policy on October 9, 2014, 79 Fed. Reg. 60951. 5 This method of calculating distance to the nearest large- or medium-hub airport is consistent with longstanding Department practice. See 54 Fed. Reg. 52766 (Dec. 22, 1989) (amending 14 CFR Part 398). 6 For example, the Department typically subsidizes two round trips a day Monday through Friday and two round trips over the weekend (12 round trips a week) or three round trips each weekday and over the weekend (18 a week). Using 313 days (52 weeks x 6 days = 312 + one day = 313), instead of 365 days, has the effect of raising the average daily enplanements by 17 percent. 7 The Notice of Enforcement Policy stated that the Department would consider the actual subsidies paid to assess a community’s average per passenger subsidy, upon request. For efficiency, the Department has decided to rely on its calculation of actual subsidies paid in this enforcement action, rather than waiting for communities to request the calculation. For all 30 communities, the average subsidy per passenger based on actual subsidies paid is lower than the average subsidy paid based on contract amounts. Thus, the Department believes that all communities subject to enforcement in this Order benefit from the use of actual subsidies paid. Communities are welcome to comment on this, however.

- 4 -

following eight communties: Bradford and Franklin/Oil City, PA; Fort Dodge and Mason City, IA; Macon, GA; Merced, CA; Muscle Shoals, AL; and Pueblo, CO. Appendix A lists the service hiatus dates for these communities. The tentative waiver for these communities is discussed further below. Appendix B shows the communities that the Department has tentatively determined to have averaged fewer than 10 enplanements per day in Fiscal Year 2015, and includes the average enplanements per day, the distance to the nearest large- or medium-hub, and total passenger levels for Fiscal Year 2015. Appendix C lists the communities that the Department has tentatively determined to have required a subsidy per passenger in excess of the Subsidy Cap and includes the actual subsidy paid to carriers providing EAS, the Fiscal Year 2015 passenger levels (enplanements plus deplanements at the EAS community), and the distance to the nearest large- or medium-hub. The Department will give interested persons 20 days after the service date of this Order to submit objections. Objections submitted in response to this Order should be strictly limited to disputing the tentative findings contained in this Order, should be fully documented, and contain complete information on the data used by the parties objecting. The Department will not entertain objections regarding extenuating circumstances; rather, those arguments are properly addressed in the communities’ waiver applications. If the Department later finalizes the tentative findings to terminate a community’s EAS eligibility in a subsequent Order, the Department will specify an effective date for termination of EAS at that community. In that event, if a specific carrier providing EAS at one of the affected communities decides to suspend service upon the effective date, the Department will expect it to contact all passengers who hold reservations for flights that will be suspended to inform them of the suspension and assist them in arranging alternative transportation or to provide a refund of the ticket price, without penalty, if requested. The Department reminds carriers that their contracts and service obligations remain in full force until the completion of this process.8 Air carriers that fail to continue providing EAS at their respective communities may be referred to the Office of Aviation Enforcement and Proceedings for appropriate handling. Proposals for Service that Comply with Subsidy Cap 49 U.S.C. § 41733(f)(2) states that the Secretary must establish procedures to permit a community to work directly with an air carrier to submit a proposal that would not exceed the Subsidy Cap prior to termination of eligibility for non-compliance with the Subsidy Cap. Communities are encouraged to work with the air carrier providing subsidized EAS to submit a proposal that complies with the minimum service requirements at 49 U.S.C. § 41732(b) for a subsidy below the Subsidy Cap. Carriers should express a willingness to amend their current Order for EAS service to reduce the subsidy, consistent with the submitted proposal. Communities wishing to submit a proposal in accordance with 49 U.S.C. § 41733(f)(2) should submit the proposal no later than 20 days following the service date of this Order. 8 The exception to this is at Victoria, TX, where the community has a grant agreement with the Department under the Alternate EAS (AEAS) program. The community must remain compliant witht the grant agreement between the Department and the community throughout the term of the agreement.

- 5 -

Appendix D shows the maximum subsidy level at the 22 communities that had continuous service during Fiscal Year 2015 required to be in compliance with the Subsidy Cap, assuming that enplanements remain constant at Fiscal Year 2015 levels. If the Department determines that a proposal is reasonable, the Department will amend the community’s current Order for EAS service to align with the proposal, and take no further action based on the community’s Fiscal Year 2015 non-compliance with the Subsidy Cap. Waiver petitions If the Department finalizes its tentative findings for any of the communities captioned above in a subsequent Order, the Secretary may grant a waiver from these requirements. Waiver procedures will be addressed in a future Order, to be issued after objections to this Show Cause Order are received and reviewed. Tentative Waiver for Communities that Experienced a Service Hiatus The EAS program contemplates that eligible communities will receive EAS on a continuing basis.9 In contrast to this purpose, the Department recognizes that eight of the 30 communities at issue experienced an extended service hiatus in Fiscal Year 201510 during which time there was no scheduled EAS at the community. The Secretary may waive the 10-enplanement requirement if the community demonstrates to the Secretary’s satisfaction that the decline in the enplanements is temporary. The Secretary may waive the Subsidy Cap on a case-by-case basis, subject to availability of funds. Each of these eight communities experienced a hiatus in service when its EAS carrier abruptly ceased operations, without a replacement carrier identified or in place. Great Lakes ceased operations at Fort Dodge and Mason City on February 1, 2014, and at Merced on July 31, 2015. Silver Airways ceased operations at Bradford, Franklin/Oil City, and Macon in November 2014. SeaPort terminated operations at Muscle Shoals in October 2014. SkyWest Airlines terminated operations at Pueblo in June 2015. A complete list of hiatus dates is in Appendix A. Because of the service hiatus, these communities endured a unique hardship during Fiscal Year 2015 that may have materially and substantially impaired their ability to comply with the 10 enplanement and Subsidy Cap requirements. Four of the eight communities (Franklin/Oil City, Macon, Merced, and Muscle Shoals) petitioned, and received, a waiver from the 10-enplanement requirement based on Fiscal Year 2013 data having demonstrated to the Secretary’s satisfaction that their decline in enplanements was temporary. Due to the extensive service hiatus experienced by these communities in Fiscal Year 2015, these communities have been unable to return to their normal EAS operations and restore enplanements. Thus, should the Department

9 See, e.g., Frontier Airlines, Inc. v. CAB, 621 F.2d 369 (10th Cir. 1980) (noting that “it is the intent of Congress that no small community shall be left without essential air services, on a continuing basis, by virtue of a certificated airline leaving the field after merely giving 90 days notice”); see also H.R. Rep. No. 95-1779, at 32 (1978) (Conf. Rep.) (“The conference substitute guarantees continued air transportation . . . . To insure such service the substitute establishes a new subsidy program . . . .”). 10 Bradford and Franklin/Oil City, PA, Fort Dodge and Mason City, IA, Macon, GA, Merced, CA, Muscle Shoals, AL, and Pueblo, CO.

- 6 -

finalize its tentative findings that these four communities did not comply with the 10-enplanement requirement during Fiscal Year 2015, the Department tentatively finds that these communities have demonstrated to the Secretary’s satisfaction that their decline in enplanements is temporary for the reasons described in their previous waiver petitions, in combination with the extended service hiatus they experienced during Fiscal Year 2015. In addition, should the Department finalize its tentative findings that all eight communities that experienced a hiatus during Fiscal Year 2015 exceeded the Subsidy Cap, the Department tentatively grants these eight communities a waiver from the Subsidy Cap requirement due to the unique circumstance of an extended service hiatus. The waiver tentatively granted by this Order applies to Fiscal Year 2015. Communities will be expected to be compliant for Fiscal Year 2016, which ends September 30, 2016. Interested stakeholders may comment on the Department’s tentative waiver for these eight communities. This Order is issued under authority delegated in 49 CFR § 1.25a(b). ACCORDINGLY, 1. The Department tentatively finds that the 12 communities listed on Appendix B averaged fewer than ten enplanements per day during Fiscal Year 2015 and are within 175 miles from the nearest medium or large hub, as specified on Appendix B, and therefore, did not comply with 49 U.S.C. § 41731(a)(1)(B). Except those communities identified on Appendix A, the Department tentatively terminates the EAS eligibility of these 12 communities; 2. The Department tentatively finds that the 30 communities listed on Appendix C required a rate of subsidy per passenger in excess of $200 during Fiscal Year 2015 and are located less than 210 miles from the nearest medium or large hub, as specified on Appendix C, and therefore, did not comply with Section 332 of Public Law 106-69. Except those communities identified on Appendix A, the Department tentatively terminates the EAS eligibility of these communities; 3. For Fiscal Year 2015, the Department tentatively finds that Franklin/Oil City, Macon, Merced, and Muscle Shoals experienced a temporary decline in enplanements due to the extensive service hiatus experienced by these communities during Fiscal Year 2015 and tentatively waives 49 U.S.C. § 41731(a)(1)(B) for these communities for Fiscal Year 2015; 4. For Fiscal Year 2015, the Department tentatively waives Section 332 of Public Law 106-69 (the “Subsidy Cap”) for the eight communities listed in Appendix A; 5. The Department directs all interested persons to show cause within 20 days of the date of service of this Order why the Department should not make final the tentative findings and conclusions set forth above. Objections should be filed electronically to Kevin.Schlemmer@dot.gov, EAS@dot.gov, or by FAX at 202-366-7638; 6. The Department directs communities that exceed the Subsidy Cap that wish to submit proposals for EAS that comply with the Subsidy Cap to submit such proposals within 20 days of

- 7 -

the date of service of this Order. Compliant proposals should be filed electronically to Kevin.Schlemmer@dot.gov, EAS@dot.gov, or by FAX at 202-366-7638 7. The Department will afford full consideration to the matters and issues raised in any timely and properly filed objections before taking further action; 8. These dockets will remain open until further order of the Department; and 9. The Department will serve copies of this Order on the civic officials of all communities listed on Page 1 of this Order and Boutique Air, Inc., Great Lakes Aviation, Ltd., Hyannis Air Service, Inc. d/b/a Cape Air, Multi-Aero, Inc. d/b/a Air Choice One, SeaPort Airlines, Inc., Silver Airways Corp., SkyWest Airlines, and Sun Air International d/b/a Sun Air Express. By:

SUSAN McDERMOTT Deputy Assistant Secretary for Aviation and International Affairs

(SEAL)

An electronic version of this document is available at http://www.regulations.gov

Appendix A

Bradford, PA 1-Nov-14 1-Mar-15 210 4,546 10.8 $1,315,318 $289Fort Dodge, IA 1-Oct-14 23-Feb-15 189 6,599 17.5 $2,140,470 $324Franklin/Oil City, PA

1-Nov-14 4-Mar-15 208 1,815 4.4 $934,506 $515

Macon, GA 5-Nov-14 30-Sep-15 31 188 3.0 $193,851 $1,031Mason City, IA 1-Oct-14 17-Nov-14 273 11,078 20.3 $3,268,588 $295Merced, CA 31-Jul-15 30-Sep-15 261 3,069 5.9 $1,918,704 $625Muscle Shoals, AL

1-Oct-14 12-Jan-15 225 1,208 2.7 $605,728 $501

Pueblo, CO 5-Jun-15 30-Sep-15 213 6,500 15.3 $1,502,092 $231

EAS Communities with a service hiatus during Fiscal Year 2015

EAS community

Service ended

Service resumed or end of FY, if service had

not yet resumed

Prorated Service

Days

FY15 traffic

Prorated enplanements

per day

Actual subsidy paid YE 09/30/15

Prorated subsidy per passenger

Notes: Prorated service days are based on 6-day a week service (EAS minimum service requirements). The Department tentatively finds that Macon’s subsidy per passenger was $1,031, based on service that lasted only from October 1, 2014, through November 5, 2014, during Fiscal Year 2015. This exceeds the $1,000 per passenger cap; however, the Department did not take any action on Macon because the community received service for only five weeks during FY 2015.

Appendix B

EAS Community/State YE 9/30/15 Pax Total

YE 9/30/15 Enplanements/

Day

Nearest Large or

Medium Hub

Distance to Large/Medium

Hub

Altoona, PA 4,568 7.3 IAD 112El Centro, CA 5,228 8.4 SAN 114

Hagerstown, MD 2,374 3.8 IAD 78Franklin/Oil City, PA* 1,815 4.4 PIT 85

Jackson, TN 2,427 3.9 BNA 137Jamestown, NY 3,289 5.3 BUF 76Lancaster, PA 2,620 4.2 PHL 86Macon, GA* 188 3.0 ATL 82Merced, CA* 3,069 5.9 SJC 107

Muscle Shoals, AL* 1,208 2.7 BNA 122Show Low, AZ 3,508 5.6 PHX 173

Victoria, TX 5,977 9.5 IAH 119

EAS Communities tentatively determined to have fewerthan 10 enplanements per service day in Fiscal Year 2015

These 12 communities also have been tentatively found to have a subsidy per passenger that exceeds $200; See Appendix C. * Indicates communities that experienced a service hiatus.

Appendix C

EAS Community/State

YE 09/30/15 Passenger

Totals (Both directions)

Actual subsidy paid - year ended

09/30/15

Subsidy per Passenger

Nearest Lg. or Med

Hub

Miles to Nearest Lg.

or Med. Hub

Alamosa, CO 6,119 $1,640,276 $268 ABQ 199Altoona, PA 4,568 $1,920,171 $420 PIT 112

Bradford, PA* 4,546 $1,315,318 $289 BUF 77Clarksburg/Fairmont, WV 9,218 $2,278,596 $247 PIT 96

Fort Dodge, IA* 6,599 $2,140,470 $324 MSP 156Franklin/Oil City, PA* 1,815 $934,506 $515 PIT 85

DuBois, PA 6,793 $2,199,316 $324 PIT 112El Centro, CA 5,228 $1,947,342 $372 SAN 114

Hagerstown, MD 2,374 $1,453,430 $612 IAD 78Jackson, TN 2,427 $1,435,281 $591 BNA 139

Jamestown, NY 3,289 $1,790,066 $544 BUF 76Johnstown, PA 8,485 $2,338,824 $276 PIT 84

Kearney, NE 9,493 $2,077,827 $219 OMA 181Lancaster, PA 2,620 $2,002,455 $764 PHL 86Macon, GA* 188 $193,851 $1,031 ATL 82

Mason City, IA* 11,078 $3,268,588 $295 MSP 133Merced, CA* 3,069 $1,918,704 $625 SFO 107

Muscle Shoals, AL* 1,208 $605,728 $501 BNA 122Owensboro, KY 7,481 $1,551,120 $207 BNA 138

Parkersburg, WV/Marietta, OH 8,907 $3,338,140 $375 CMH 110Pendleton, OR 8,422 $1,797,333 $213 PDX 203Prescott, AZ 6,916 $2,056,469 $297 PHX 102Pubelo, CO* 6,500 $1,502,092 $231 DEN 121

Salina, KS 2,824 $997,557 $353 MCI 186Scottsbluff, NE 7,480 $1,621,737 $217 DEN 192Show Low, AZ 3,508 $1,112,976 $317 PHX 173

Tupelo, MS 5,181 $1,725,914 $333 BNA 203Victoria, TX 5,977 $2,420,118 $405 IAH 119Visalia, CA 9,297 $1,899,753 $204 BUR 178

Watertown, SD 2,688 $2,446,273 $910 MSP 207

* Indicates communities that experienced a service hiatus

Applicable EAS Communities tentatively determined to

have per-passenger subsidies in excess of $200

Appendix D

Alamosa, CO 6,119 $1,640,276 $268 $1,223,800Altoona, PA 4,568 $1,920,171 $420 $913,600

Clarksburg/Fairmont, WV

9,218 $2,278,596 $247 $1,843,600

DuBois, PA 6,793 $2,199,316 $324 $1,358,600El Centro, CA 5,228 $1,947,342 $372 $1,045,600

Hagerstown, MD 2,374 $1,453,430 $612 $474,800Jackson, TN 2,427 $1,435,281 $591 $485,400

Jamestown, NY 3,289 $1,790,066 $544 $657,800Johnstown, PA 8,485 $2,338,824 $276 $1,697,000Kearney, NE 9,493 $2,077,827 $219 $1,898,600Lancaster, PA 2,620 $2,002,455 $764 $524,000

Owensboro, KY 7,481 1,551,120 $207 $1,496,200Parkersburg,

WV/Marietta, OH8,907 $3,338,140 $375 $1,781,400

Pendleton, OR 8,422 $1,797,333 $213 $1,684,400Prescott, AZ 6,916 $2,056,469 $297 $1,383,200Salina, KS 2,824 $997,557 $353 $564,800

Scottsbluff, NE 7,480 $1,621,737 $217 $1,496,000Show Low, AZ 3,508 $1,112,976 $317 $701,600

Tupelo, MS 5,181 $1,725,914 $333 $1,036,200Victoria, TX 5,977 $2,420,118 $405 $1,195,400Visalia, CA 9,297 $1,899,753 $204 $1,859,400

Watertown, SD 2,688 $2,446,273 $910 $537,600

Maximum annual subsidy to be compliant with $200 per passenger subsidy cap

EAS Community/State

YE 09/30/15 Passenger

Totals (Both directions)

Actual subsidy paid YE 09/30/15

FY2015 subsidy per passnger

Maximum annual

subsidy to be compliant